Green business

CAN companies succeed where governments have failed to protect the environment? The question was repeatedly asked in Rio de Janeiro this week, at the UN’s vast three-day environment summit, which was due to end on June 22nd.

That was largely a sign of desperation. Despite the presence of scores of heads of state, Rio+20, as the summit is known, was expected to produce the weakest imaginable commitment to greening the global economy. On many counts—including a wishy-washy commitment to look beyond GDP as a measure of progress—it represented little or no progress on the summit’s more illustrious forebear, the 1992 Earth Summit, at which important agreements on combating climate change and biodiversity loss were reached.

Yet the prominence of many of the world’s biggest companies in Rio this week was a cause for genuine, if perhaps limited, cheer. Hardly any were represented in Rio in 1992; in 2012 companies were all over the summit—and many had interesting progress to report.

A coalition of 24 large firms, including Coca Cola, Unilever, Nike, announced a common commitment to make conservation a main plank of their planning. Most were already well-known for their green thinking. Kimberly-Clark, the world’s biggest tissue maker, was less noted: it announced it would cut its use of wood from natural forests by half by 2025.

On a grander pitch, a coalition of institutional investors, led by Aviva, a big British insurer, sought to influence the outcome of the summit itself. They clubbed together as the Corporate Sustainability Reporting Coalition, a group that also includes the asset management arms of Schroder and Kleinwort Benson and claims to have around $2 trillion dollars in assets under management. Its aim was to lobby governments to pressure companies into providing regular reports on their environmental and social performance. And the expected Rio+20 agreement suggests the coalition has scored a modest success.

Point 47 of the agreement reads: “We acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle.”

That is much flimsier than Aviva’s coalition wanted—having been watered down, in last-ditch negotiations, due to objections from America, India and Kazakhstan, who feared it would put an onerous regulatory burden on their companies. Nonetheless Paul Abberley, boss of Aviva Investors, claimed to be pleased with the outcome. “It’s 30% of what I wanted to see. But I thought I was going to get 0%.”

The coalition wants companies to publish data on their greenhouse-gas emissions, use of water, employee satisfaction (measured by recent staff turnover) and many other such indicators. Its recommendation to governments was that this should be required in the Rio+20 agreement on a ”report or explain” basis. In other words it would not be mandatory; but the non-compliant would need a good excuse.

Mr Abberley says investors require such information for honest-to-goodness selfish reasons. Companies that take sustainability seriously are thought to perform better than those that do not: probably because such attention to detail is typical of well-managed companies. More important, ungreen business practices—including profiting from an unpriced externality, such as carbon dioxide emissions—could represent a serious investment risk. “Our customers want to a good return on long-term investments,” said Mr Abberley. “And we think unsustainable business practices are a genuine risk to the investment.”

This sort of corporate reporting is not new. It started in earnest in 2001, with the launch of the UN’s Global Compact, which coaxes firms to publish a range of data. It has been followed by many similar initiatives, including the more stringent Global Reporting Initiative. As a result around a third of listed companies publish at least some data on their environmental and social performance; though most provide much less than Aviva and its allies want.

The Rio+20 agreement has given modest support to their demands. The question will now be how to implement it.